ETF Radar Magazine (Q1/2010) by ETF Radar

News • Market Intelligence • Rankings

2 Quarter 2010

etfRADAR M

Issue No. 6 ISSN 2150-9166

Insights&Strategy

MAXIMATION OF CLIENTS’ RETURNS HAPPY BIRTHDAY, SOURCE ETF Marketplace

Coverstory

THE EVOLUTION OF ETF PORTFOLIO-LEVEL CONSTRUCTION

AMERICAS, EUROPE AND ASIA-PACIFIC AT A GLANCE Research

EUROPE’S NEW ETF SEARCH ENGINE Interview

REID STEADMAN

Contents 3 EDITORIAL 5 MARKET SUMMARY Selected statistics and news from all over the world.

6 SECTOR MAP

14 MARKET PLACE Global ETF news and selected market statistics at a glance.

Performance of the 19 Supersectors represented by the Dow Jones Sector Titans IndexesSM.

15 AMERICAS

8 COVERSTORY

16 EUROPE

The Evolution of ETF Portfolio-Level Construction: The continued ETF-industry growth presents manager and advisor opportunities.

10 INSIGHTS &

21 INTERVIEW

17 MIDDLE EAST & ASIA-PACIFIC

Standard&Poor’s Reid Steadman

23 CAREER &

18 PORTFOLIO

EVENTS

STRATEGY

ALLOCATOR SECTOR UPDATE

The First Year In Business:

SPDR Consumer Discretionary ETF.

A review of the current job market and an overview about upcoming events within the ETF industry.

20 RESEARCH

25 GLOBAL PLAYERS

Source ETF celebrates its first birthday.

12 Maximation of clients’ returns: How an option strategy can improve the performance of your clients’ ETF portfolio.

Europe’s New ETF Search Engine: Delivering the transparency that ETFs deserve.

Comprehensive details about the world’s largest ETF providers.

COMPANY-INDEX (Name, page)

Abu Dhabi Securities Exchange Amundi Borsa Italiana Capital Wealth Planning Credit Agricole Credit Suisse Cohne Investment Group Deutsche Bank Dow Jones Falcom Financial Services Innealta Portfolio Advisors JPMorgan Chase ProShares Trust

ETF Radar Magazine • 2nd Quarter 2010

17 4 4 12 4 16 18 7 6 17 8 15 15

Prudential Qbasis Invest Republic of Greece Societe Generale Source Standard & Poor’s Xmatch

4 16 4 4 10 21 16

Editorial CONTACTS & INFORMATION

How much Greece is in your ETF?

urbulent times usually produce turbulent headlines. No doubt, the current financial situation of the Republic of Greece is worrying. The Mediterranean state’s budget is in a very bad condition, corruption across all levels of the Greek society is daily reality, and the Finance Minister is fighting for a multi-billion savings package in order to cut the government expenses drastically. Along with this chaotic situation, the spreads of the Greek government bonds soared and rumors of a potential bankruptcy came up. Some days after the media reported about a “collapse” and a “potential bankruptcy”, some questions arrived us alá “What about Greek government bonds used as collateral in my ETF?”.

The ETF Radar Magazine NORTH AMERICA eMail: americas@etf-radar.com Phone: +1 239 384 6090 Mailing address: 2316 Pine Ridge Road #402 Naples, FL 34109 EUROPE, MIDDLE EAST and ASIA-PACIFIC eMail: europe.asiapacific@etf-radar.com Phone: +49 89 220 61 004 Mailing address: Postfach 101214 80086 Munich GLOBAL PUBLISHER Martin Raab, CAIA

To say it clear: Yes, indeed - most of the swap collaterals of synthetic replicated ETFs contain Eurozone government bonds, including some Greek bonds. But the daily collateralization mechanism between the manager and the swap counterparties ensures that no “junk bonds” will remain undiscovered in the collateral basket. If a particular bond which is used as swap collateral will decline to much value, the swap counterpart has immediately to deliver an additional, valuable security. This is a clear advantage of ETFs compared to mutual funds, where nobody except the asset manager itself decides if a crashing position of Greek bonds should be sold (eventually for a bad price) or should be held, while the associated risk will become larger and larger.

DESIGN DIRECTOR Cathrine Corbeau TECHNICAL DIRECTOR Tobias Stoeger WEBSITE www.etf-radar.com ISSN 2150-9166

More facts about the advantages of ETFs you will find in our coverstory. Investment veteran Jeff Buetow writes about the Evolution of ETF Portfolio-Level Construction. Also you can read about the first year in business of Source ETF, a newcomer in Europe, and the way to maximize your clients’ returns by using an option strategy. Finally we have interesting news from S&P’s index business and the launch of Europe’s new ETF search engine, which will be expanded soon.

SUBSCRIPTION Subscriptions to the magazine are complimentary for qualified readers and 72 USD for others.

Another good news: The US consumer still has a pulse (hence our tactical allocation model recommend to think about the SPDR Consumer Discretionary ETF) - and effective January 2013 most US citizens will have a health insurance.

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Happy Easter! Enjoy reading,

RESEARCH DIRECTOR Sebastian Stahn

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Snapshots NEWCOMER

THE WORLD’S MOST TRADED ETFS (Data as of March 18, 2010; Sorted descending)

Name

YTDReturn% Daily Trading Volume

SPDR S&P 500 (SPY)

4.06

210,753,802

Financial Select Sector SPDR (XLF)

8.96

127,516,377

PowerShares QQQ (QQQQ)

3.92

109,282,321

–0.75

72,226,994

7.96

55,257,755

iShares MSCI Emerging Markets Index (EEM) iShares Russell 2000 Index (IWM) Ultra Financials ProShares (UYG) Direxion Daily Financial Bear 3X Shares (FAZ)

17.10

47,894,382

–27.06

46,239,875

-9.90

39,290,905

8.40

34,711,206

UltraShort S&P500 ProShares (SDS) Ultra S&P500 ProShares (SSO) United States Natural Gas (UNG)

–25.40

30,216,163

iShares MSCI Japan Index (EWJ)

5.75

27,640,022

UltraShort Real Estate ProShares (SRS)

–19.17

27,448,677

iShares Dow Jones US Real Estate (IYR)

9.23

26,133,030

Ultra Real Estate ProShares (URE)

17.27

25,576,766

–17.99

25,019,148

iShares FTSE/Xinhua China 25 Index (FXI)

–2.79

23,805,394

Direxion Daily Financial Bull 3X Shares (FAS)

UltraShort Financials ProShares (SKF)

24.56

21,583,377

Energy Select Sector SPDR (XLE)

0.47

20,827,935

iShares MSCI EAFE Index (EFA)

0.16

20,229,498

–24.85

19,248,933

Direxion Daily Small Cap Bear 3X Shares (TZA)

Source: ETF Radar Global Research, December 2009.

UP & DOWN

Tidjane Thiam the CEO of Prudential plc is in the process of trying to pull together what must be the biggest deal of his life. American International Group Inc. agreed to sell an Asian life insurance unit (AIA) with 20 million customers to Prudential Plc for USD 35.5 billion in the company’s biggest divestiture since it was bailed out. Prudential, Britain’s biggest insurer, will pay USD 25 billion in cash and USD 10.5 billion in stock and other securities for AIA Group Ltd., the London-based insurer. The mantra for the former minister in the Ivory Coast government – currently the only black chief executive of a FTSE 100 company – is apparently: Analysis leads to paralysis while emotion gets things done. Little wonder that this mega-deal has already stirred the emotions of the Square Mile. Some bankers called it “the most irresponsible and reckless act of any management in history”, others just said “it's brave, it's bold and it's the right thing to do.” ETF Radar Magazine • 2nd Quarter 2010

OPERATIONAL LAUNCH OF “AMUNDI ETF” HAS BEEN SUCCESSFUL The CASAM ETF range has been successfully rebranded as Amundi ETF, following its operational launch in January 2010. Amundi is the new name of the joint-venture of Societe Generale (25%) and Credit Agricole (75%). Both French major banking giants merged its asset management activities into the new legal entity. In line with the strategy, the formerly CASAM ETF range, which comprises of 78 products, is now managed and operated by Amundi. Recently Armundi listed 15 new equity ETFs (incl. short and leveraged products) on the Borsa Italiana. The funds use synthetic replication, utilizing a swap with Credit Agricole, which delivers the performance of the underlying indices. Amundi ETF is expected to increase its market visibility and product range soon.

Giorgos

Papakonstantinou the Finance Minister of the Republic of Greece currently holds one of the most unattractive jobs on earth. His country is in a very serious financial crisis - not to say shortly before bankrupcty. Earlier in Februar, the NYTimes reported that Greece has artificially decreased its debt level by using complex financial transactions arranged by Goldman Sachs and J.P. Morgan in 2001. The eurozone rules dictate that governments must keep a country's deficit below 3% of its Gross Domestic Product and must take on total debt of no more than 60 per cent of GDP – rules that Greece did not keep to, even during the economic boom. Giorgos and his cabinet colleagues are now forced to cut the government costs drastically (EUR 4.8 bn), which is not easy in a country where nearly 20% of the workforce is state employed.

Market Summary

THE GLOBAL MARKETS AT A GLANCE GLOBAL EXCHANGE TRADED FUND FLOWS (Net New Flows by region in USD bn.)

JAN

FEB

MAR

MAJOR EQUITY INDICES (performace in percent)

}

105%

+ 64 102.5%

+21

100%

+9.6

+93.8 billions

97.5%

–3.4

95%

+2.5

Net New Flows YTD

YTD-SEP 2009

92.5%

90.0%

DOW JONES INDUSTRIAL AVERAGE (US) EUROSTOXX 50 (EUROZONE) DAX 30 (GERMANY) NIKKEI 225 (JAPAN) HANG SENG (HONG KONG)

2008

COMMODITIES -20 -10

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 UNITED STATES OFFSHORE EUROPE JAPAN ASIA PACIFIC

JAN

DEC

NOV

(performace in percent)

110%

107.5%

MARKET VOLATILITY MAR

FEB

JAN

NOV

DEC

(performance in points) OCT

105%

32 102.5% 30

27.5 100% 25

97.5%

22.5

20 95% 17.5

DOW JONES UBS COMMODITY INDEX WTI OIL FUTURE FEB 2010 (IPE) GOLD (SPOT) NATURAL GAS INDEX (AMEX)

S&P500 VOLATILITY INDEX (CBOE)

Source: Interactive Data Solutions | Data as of March, 22 2010.

Source: IDS, Blackrock | Data as of March 22, 2010.

NUMBER CRUNCHER

115

Number of ETF Provider worldwide

88.000 €

Average costs for launching an ETF series (UCITS III), excluding external marketing and sales costs.

4:20h

Average time needed to arrange (RFQ, documentation and fixing) an OTC Swap for synthetic replication of a major stock index.

Source: ETF Radar, Blackrock, UDS; Data as of March 2010.

ETF Radar Magazine • 2nd Quarter 2010

Sector Map

THE GLOBAL SECTOR TITANS AT A GLANCE DOW JONES SECTOR TITANS INDEXES (Sector performace in percent – 3M and YTD)

Official Index Partner of the ETF Radar Magazine

The Dow Jones Sector Titans Indexes reflect the composition and performance of the 19 Supersectors defined by the Industry Classification Benchmark (ICB). Stocks are chosen based on float-adjusted market capitalization, revenue and net income. The top 30 companies are selected as index components.

WORST PERFORMING SECTORS

Construction & Materials –4.31%

Insurance –1.79%

Hearth Care +0.36%

Telecommunications –6.63%

Banks –7.74%

Basic Resources –3.32%

Food & Beverage –1.27%

Automobiles & Parts +0.59%

Utilities –5.57%

Oil & Gas –6.06%

Financial Services –3.23%

Chemicals –2.58%

Real Estate

Retail +0.27%

–0.70%

Technology +0.60%

Industrial Goods & Services +2.74%

Media +3.10% Travel & Leisure +4.11%

Personal & Household Goods +4.58%

Source : Dow Jo nes Ind exes a s of

26 Feb ruary 2 010.

BEST PERFORMING SECTORS Index

Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow Dow

Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones Jones

3 Month YTD Performance Performance Banks Titans 30 Index Price Return (USD) Telecommunications Titans 30 Index Price Return (USD) Oil & Gas Titans 30 Index Price Return (USD) Utilities Titans 30 Index Price Return (USD) Construction & Materials Titans 30 Index Price Return (USD) Basic Resources Titans 30 Index Price Return (USD) Financial Services Titans 30 Index Price Return (USD) Chemicals Titans 30 Index Price Return (USD) Insurance Titans 30 Index Price Return (USD) Food & Beverage Titans 30 Index Price Return (USD) Real Estate Titans 30 Index Price Return (USD) Retail Titans 30 Index Price Return (USD) Health Care Titans 30 Index Price Return (USD) Automobiles & Parts Titans 30 Index Price Return (USD) Technology Titans 30 Index Price Return (USD) Industrial Goods & Services Titans 30 Index Price Return (USD) Media Titans 30 Index Price Return (USD) Travel & Leisure Titans 30 Index Price Return (USD) Personal & Household Goods Titans 30 Index Price Return (USD)

ETF Radar Magazine • 2nd Quarter 2010

-7.74% -6.63% -6.06% -5.57% -4.31% -3.32% -3.23% -2.58% -1.79% -1.27% -0.70% 0.27% 0.36% 0.59% 0.60% 2.74% 3.10% 4.11% 4.58%

-4.63% -6.82% -6.74% -7.75% -8.84% -7.08% -4.73% -4.89% -3.32% -3.42% -3.38% 0.60% -1.25% -5.14% -4.39% 1.16% -2.66% 4.07% 1.51%

Market Summary

FOCUS: EUROPEAN ETFS FLOW-TRENDS FLOWS OF EUROPEAN ETFS BY ASSET CLASS

AUM FOR EUROPEAN ETFS BY ASSET CLASS

(in Euro million)

Commodity - ETF

Commodity - ETC

Credit

Equity Equity

Debt Debt

Money Market Money Market

Other ETFs Other ETFs

-500

500

1.000 1.500 2.000 2.500 3.000 1M Flow

3M Flow

20.000 40.000 60.000 80.000100.000120.000140.000

FLOWS OF EUROPEAN ETFS BY SECTOR

FLOWS OF EUROPEAN ETFS BY GEO FOCUS

(in Euro million)

Americas Emerging Markets Euroland European Union France Germany Global Italy Japan Spain Sweden Switzerland UK Others 0 1M Flow

3M Flow

4.000

8.000

12.000 16.000 20.000 24.000 All data as of 28 February 2010.

KEY FINDINGS  By Indices: Within the last six weeks the Euro Stoxx 50 and the DAX 30 (represented within the category “Equity”) have the largest net inflows.  By Asset-Class: Biggest winner are Equity ETF, which continued gaining new assets.  By Sector: Still the biggest loser are Bank ETFs, followed by Food&Beverage linked products. Health Care is once again the investors’ favorite sector.  By Fund: The biggest asset gathering ETF was Lyxor’s EURO STOXX 50, followed by the both iShares ETFs S&P 500 and Euro Stoxx 50.

ETF Radar Magazine • 2nd Quarter 2010

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Coverstory

The

Evolution

The continued ETF-industry growth presents opportunities for managers and advisors. One of the greatest benefit, certainly for asset managers, is the ease with which one can now implement tactical asset allocation strategies using ETFs. BY GERALD W. BUETOW, JR., PHD, CFA | INNEALTA PORTFOLIO ADVISORS/AL FRANK ASSET MANAGEMENT | LAGUNA BEACH (CA)

aking for, arguably, the single most important development in modern investment management, the ETF industry has scaled dramatically over the past decade. The past five years marked particularly striking gains in breadth, relevance, applicability and liquidity, with a consequent boom in assets managed underneath the ETF structure. That growth, too, has engendered great flexibility in the usage of ETFs for portfolio-level asset allocation. With assetclass allocation strategies of both the tactical and strategic natures gaining in interest, the expansion of the ETF opportunity set should continue to impress on the strategies' viability. ETFs - Still An Extraordinary Growth Story Since the introduction of Standard & Poor's Depositary Receipts, or now affectionately known as the Spiders, in the early part of 1993, the availability of and investment options among Exchange Traded Funds have soared. According to the Investment Company Institute (ICI), total ETF assets have swelled from approximately $1 billion in 1995, to $732 billion at the end of January 2010. The number of ETFs traded has similarly multiplied, reaching 816 in January, up from 737 at the same point in 2009. Worth stronger note, though, is the vast expansion in the breadth of investment opportunities granted by those more than 800 funds. Ten years ago it was barely conceivable, let alone feasible, to construct a musterproof multi-asset class portfolio using ETFs. Though, by 2003, all major equity indices had representative ETFs, meaningful ETF representation eluded fixed income investors until the middle of 2007. Competition for assets bred greater granularity over time, leading to ETF Radar Magazine • 2nd Quarter 2010

increased coverage of international equity markets, as well as domestic equity sectors. Aside from the fixed income basket, most all segments have experienced sufficient volume growth such that liquidity need not be a concern for a very wide range of asset-allocation endeavors. ETFs are now at a point of breadth and depth to be considered a viable investment vehicle in almost every meaningful asset class. And with continued improvement in offerings and liquidity, it likely should not prove long before ETFs become the most dominant investment vehicle in the industry. That view is supported by the recognizable push to concentrate on asset class-level investment decisions, which should lure additional investors (read: assets) into ETFs, which have become the most efficient class of securities to implement such strategies. Going Tactical with ETFs That the ETF industry has facilitated portfolio-level asset allocation is a fine thing, for sure. But the greater benefit, certainly for managers such as ourselves, is the ease with which one can now implement tactical asset allocation strategies using ETFs, sourced primarily from the seemingly ever-expanding set of investment options and the vastly improved liquidity many of those alternatives provide. The only downside, if one could even call it that, is that the evolutionary nature of the ETF market requires that active ETF managers must constantly be aware of the availability of new ETFs, any enhancements in their liquidity, emerging improvements in expense ratios across competing ETFs, evolving trends in index »

of ETF Portfolio-Level Construction

Coverstory

tracking errors and various other characteristics necessary to properly manage an ETF portfolio. Our firm manages a number of active ETF portfolios. Currently these include a U.S. Domestic Sector Rotation Portfolio (SRP), an International Country Rotation Portfolio (CRP) and various multiasset-class portfolios. We'll use the CRP to illustrate how this portfolio has adapted to the evolving ETF marketplace. The CRP allocates equally across various international equity markets when bullish on

exchanged the iShares Barclays Aggregate Bond Fund (AGG) with the equivalent Vanguard Total Bond Market ETF (BND) for a 10bps expense savings at almost no loss of liquidity. These savings can be passed directly onto the investor. In fact, we have improved several of our products as a result of ETF availability, liquidity improvements or cost savings. As larger ETF manufacturers begin to compete we expect further compression in fees as continued gains in the usage of ETFs spawn greater improvements in liquidity. We further deal with

The evolution of the ETF markets h a s r e vo l u t i o n i z e d p r o d u c t development within the active ETF portfolio management arena. Strategies impossible a decade ago are now accessible to investors of nearly all types, so extraordinary is the ability to gain immediate and inexpensive systematic exposure both beta and duration. And as the ETF marketplace continues to evolve it's likely mere imagination will prove the sole limit to portfolio management creativity.

“Strategies impossible a decade ago are now accessible to investors of nearly all types” equities or to an ETF based actively managed bond portfolio. The CRP Then and Now To illustrate how the ETF markets evolution has affected product design we'll pick two points in timethen (5 years ago) and now. While many country ETFs existed back then, only a few maintained levels of liquidity sufficient to accommodate the needs of the portfolio. Additionally, on the fixed income side we were essentially confined to U.S. Treasury-based ETFs. Using a liquidity cutoff of 50,000 shares daily volume for the equity ETFs and 250,000 for our fixed income ETFS, our CRP would look like that illustrated in Table 1, which also includes the current CRP. Five years ago the product consisted of 14 countries and 3 fixed income ETFs; now the product consists of 20 countries, as well 6 different fixed income ETFs. Increases in volume multiples range from a low of 2 all the way up 23 times the 5-year-ago level. Moreover, we have several competing products covering essentially the same markets for lower costs. For example, we recently ETF Radar Magazine • 2nd Quarter 2010

liquidity issues by directly creating and redeeming ETFs with the various ETF manufacturers. However, these efforts require some economies of scale that are normally unavailable to smaller investment firms developing new products. Next Generation Portfolio Construction Capabilities In several of our strategies we have introduced the next generation of products using leveraged ETFs. These ETFs enable us to obtain our systematic equity exposure using a fraction of the collateral used in our original products. We offer these newer products in our SRP and multi-asset class ETF portfolios. The freed-up collateral is then deployed wherever we think there is an attractive risk-adjusted opportunity. Currently we enhance diversification and increase income by using bond and gold ETFs.

CURRENT CRP ETF USAGE Equity Market Country

ETF Ticker

Available for CRP 5 Years

Ago MALAYSIA NETHERLAND GERMANY MEXICO SWEDEN FRANCE SPAIN SWITZERLAND ITALY SINGAPORE UK AUSTRALIA BELGIUM SOUTH AFRICA TAIWAN JAPAN KOREA HONG KONG CANADA CHINA Fixed Income US-T 1/3 US Treasury 7-10 US Treasury 20+ US Tips Barclays Aggregate

EWM EWN EWG EWW EWD EWQ EWP EWL EWI EWS EWU EWA EWK EZA EWT EWJ EWY EWH EWC FXI SHY IEF TLT TIP AGG

YES NO YES YES NO NO NO NO NO YES YES YES YES YES YES YES YES YES YES YES YES YES YES NO NO

Source: Innealta Portfolio Advisors

Gold ETFs became available a bit more than five years ago, but now are well understood and extremely liquid. Yet another example of the materially beneficial impact of the evolution of ETF markets on the ability to improve product.

Insights&Strategy

The

First year The first year of running a business is the most important, and determines whether you are set up for success or failure. In April this year, Source ETF will celebrate its first birthday - or twelve successful months of transforming the trading of European ETFs.

BY HOLGER SCHMID | SOURCE ETF | LONDON

n April 2009, Source entered the European Exchange Traded Product (ETP) market with the goal of enhancing the performance and trading of products by focusing on reduced counterparty risk, improved liquidity and increased transparency. The company, whose shareholders include BofA Merrill Lynch, Goldman Sachs, JP Morgan, Morgan Stanley and Nomura, has achieved rapid success Source has raised over US$4 billion in total assets under management (AUM) in less than one year, with 42 Exchange Traded Funds (ETFs) and 28 Exchange Traded Commodities (ETCs) now listed on Deutsche Boerse and the LSE. In particular, Source's innovative optimised European sector ETFs have radically improved liquidity in this space, trading over €20 billion in just 8 months and capturing 17% of total European sector ETF AUM. The European ETF Market Ripe for Innovation Some would argue that innovation means more benchmarks and more payoffs, but Europe has plenty of these. What is lacking is structural innovation: changes in the way products are delivered and traded that allow them to truly deliver on the “Exchange Traded” part of ETF. Source is focused on transforming the trading of European ETFs. The European ETF market has 1 per cent daily AUM turnover on-exchange, while the US has 10-12 per cent. However, in the US all trades are reported, whereas in Europe investors can't easily add up on-exchange and over the counter (OTC) volumes. There is no perfect solution for showing all European investors total OTC flows. If investors assume that the European ratio is 2:1 OTC to onexchange, this would bring European daily flows up to 3 per cent of AUM, which is still three to four times lower ETF Radar Magazine • 2nd Quarter 2010

than the US. There are several factors that weigh against the European ETF market in its current form, with the most important factor being fragmentation. In spite of the European market having one third of the AUM of the US (Europe: US$227bn vs US: US$705bn), there are more ETF providers (28), more ETFs (829), and many more exchange listings in Europe (18). The end result is significant fragmentation of the European ETF market and no exceptional trading products such as the SPDR S&P 500 ETF the world's most liquid security and surely the ETF industry's defining product. Most observers say that these differences between the two markets are to be expected. Multiple exchanges, multiple regulatory approaches (even under UCITS III), multiple languages, multiple currencies, domestic bias, differing tax regimes and captive distribution channels all make fragmentation inevitable. In contrast, the US is a large and uniform market. Retail investors account for a higher proportion of the ETF market in the US (50 per cent of the investor base rather than 10 per cent in Europe) and US retail investors are significantly more self-directed in their investment approach. Hedge funds also trade US ETFs in size, often representing more than 30 per cent of daily trading flow, while they have historically not used European ETFs. This disparity is the result of a chicken-and-egg situation − the market in Europe is not liquid enough to entice them − as well as a structural issue in that there has not been an active market in lending and shorting European ETFs. By and large, hedge funds have resorted to the OTC derivatives market for exposures that, in the US, they would achieve through ETFs. Is there any way to actively change the European market or do participants have to »

In Business

Insights&Strategy

wait for organic, incremental change to occur? Perhaps the increase in liquidity is inevitable: the European market is already large, it is growing quickly (outpacing the mutual fund industry), and it is receiving increasing investor and media attention. Incremental changes in liquidity will naturally occur as AUM grows, but a fourfold difference in trading activity between the US and Europe is still a big gap to close through organic, incremental changes. Real change will require the elimination of structural barriers that will not simply be eroded by the tides of organic growth. How Source optimised sector ETFs changed the market As a case study, let us look at European sector ETFs. In the US, sector investing through ETFs is a vibrant market. Some 11 per cent of ETF assets are invested in sectors, trading turnover is high (8-10 per cent) and hedge funds are actively involved. In Europe, historically, sector assets were less than 4.5 per cent of overall ETF AUM, and on-exchange turnover was at or below the market average of 1 per cent. However, there has been a small revolution occurring. At the end of July 2009, Source launched 18 sector Exchange Traded Funds benchmarked to the new DJ STOXX 600 Optimised Supersector indices. Index innovation is not uncommon in Europe, but there were two differences in this case. First, the index innovation was not focused on outperformance but rather on tracking a more liquid basket using both average daily turnover and stock lending data to enhance the index. Second, when Source launched ETFs linked to these new indices, it also focused on the liquidity of the ETFs themselves, creating a seamless stock lending market for these new ETFs. To date, lending and shorting of Exchange Traded Funds in Europe has been limited, so the market has been focused instead on trading from

ETF Radar Magazine • 2nd Quarter 2010

the long side. Selling has been the result of investors reducing positions. This naturally constrains the trading volumes and has a tendency to further exclude hedge funds which are as likely to want to short as to go long. When Source launched its sector ETFs last July, it provided an area of the European ETF market in which to

forward. The next stage is to create an intersection between the OTC and on-exchange markets. They currently remain separate with on-exchange flows focused on small tickets and with most institutional clients finding liquidity OTC. An increase in onexchange turnover would increase transparency as well as offering

EUROPEAN SECTOR ETF MONTHLY CASCADE VOLUME (in EUR bn.)

Sources: ETF Radar Global Research, Source ETF

determine whether it was structurally possible to reach US levels of liquidity. The results have been groundbreaking and very encouraging. Today, Source has an actively traded range of sector ETFs with more than US$1.6bn of assets, daily trading turnover equivalent to 15 per cent of AUM, and as much activity shorting the product as going long. More importantly, hedge funds are actively using the product and trading has skyrocketed. In February 2010, Source sector ETF trading represented 80% of all European sector ETF trading, €6.8 billion for the month, which is a massive increase in market activity.

anonymity to investors. OTC market makers would benefit from being able to trade between the two markets, laying-off risk by trading the ETF onexchange rather than hedging by trading the underlying basket or relevant futures. To conclude, there are many forms of innovation that can benefit ETF investors but the most effective is significant structural innovation. As its first anniversary approaches, Source has started to achieve what is set out to do, which is to structurally change the European ETP market. It is now up to investors to vote with their AUM and trading volumes as to where they want the market to go next. 

This shows that US levels of trading turnover are possible in the European ETF market. This is a big step

Insights&Strategy

Maximation Sophisticated financial advisors should think about new ways to maximize their clients’ returns. Options as a planning technique can play a strategic role in every portfolio, especially for a conservative investor.

BY KEVIN SIMPSON | CAPITAL WEALTH PLANNING | NAPLES (FL)

uring this period of market volatility, many investors are looking to maximize their investment performance and reduce losses. Writing “covered calls” is the easiest and most cautious way to utilize stock options. There are lots of myths surrounding stock options they are too complex, too risky, and only for industry professionals. The truth is, options can play a strategic role in every portfolio, especially for a conservative investor.

collecting a premium for selling the option. Call buyers can make money if the stock covered by the option trades at a higher price than when the option was purchased. Usually, but not always, a rise in the stock price raises the call price as well.

A covered call is an option sold on stocks or ETFs that an individual already owns. It gives the buyer the right to purchase shares at a fixed (strike) price for a limited amount of time, usually for several weeks. For this right, the buyer pays a premium, providing the call writer with an The Idea Behind instant return on a stock or ETF that he or she currently “Covered” means you own the stocks or exchange traded owns and one that may not be moving. The premium can funds (ETFs) that back the options, like collateral. This often act as a partial hedge conservative option strategy should the investment is suitable for income- THE COVERED CALL STRATEGY decline in price. (Illustration of simplified covered call strategy; all data are strictly indicative) oriented, protectionminded investors.  Investor “A” sells call options (”B” has the right to buy 100 GE shares @ $20 within Think “renting the stock a specific time frame) with an option to buy.” To A “call” is one of the two better illustrate this concept basic option contracts, the let's consider the following: other being a “put” option.  Investor “B” pays an option premium (i.e. $1.25 x 100 options - equals an insurance premium) A call gives the holder the An Example right, but not the strict “A” has the obligation to deliver 100 GE shares for $20 each if requested obligation, to buy the Suppose you purchase 500 by the options buyer (”B”) during the “A” Investor “B” underlying stock or ETF at Investor shares of the exchange whole options contract lifetime. Option Seller Option Buyer a preset price (the strike (“Call Writer”) traded fund XYZ at $48 a “B” will execute the options (calls) price) by a specific date in share in July for a total cost only if the GE shares will trade higher the future (the expiration). of $24,000. In August you than $20. In all other cases he could buy the shares cheaper on the stock The seller (or writer) of a decide to write covered calls Options exchange. call has to sell the stock or against the ETF. You would  Expiry of the options Portfolio “B”: ETF to the holder of the Portfolio “A”: sell five contracts (each After expiration of the options (i.e. 3 months), ”A” earned 100 Shares 100 Options option if the holder contract represents 100 $125 ($1.25 x 100 options) option premium - provided that GE’s share price has not increased dramatically. exercises the option on or shares) that expire in “B’s” right to buy the GE shares has been expired. before that date. Call October with a strike price writers make money by of $50. Let's further » Source: ETF Radar Global Research, CBOE.

ETF Radar Magazine • 2nd Quarter 2010

of clients’ returns

Insights&Strategy

assume that you are able to sell these options for a premium of $1.25. You would collect $625 in total premiums, maybe about $610 after commissions. If the price of XYZ Fund has not exceeded $50 by the third Friday of October, you keep your ETF and the $610 premium. If however, the ETF “strikes” $50 or above, you retain the premium but are obligated to sell the shares at that price, which still leaves you with a gain of $2 per share. That gain, in combination with the collected premium, totals $1,610. Remember, if the ETF rises to $53, or even $63, you are still obligated to sell the shares at $50. Earn Attractive Returns But Don’t Ignore The Risks The $610 collected in premiums may not seem that impressive, but it does equate to about 2.54% of your initial investment. Because the option lasted only two months, that figure equates to about a 15.24% annual return. As great as it sounds there is one major downside to covered call writing. If

buyer will probably want to exercise and buy the stock or ETF. You can control the risk of having stocks or funds called away by writing a call with at strike price that is far above the shares' current value. The further “out of the money” the strike price is, however, the lower the premium you will receive. Chances are, you will be unable to effectively write a call at all with a strike price much outside the recent trading range. In addition to time value, a premium's size depends on its intrinsic or cash value, as well as the perception of investors on how likely the contract is to finish in the money.

write covered calls only on investments you don't mind selling. To achieve consistent performance when writing covered calls, it is recommended that you don't get too greedy. Work with a qualified firm that sells out-of-the money contracts that expire in the short term (i.e., 30 days). The premiums will not be that substantial, but this conservative approach will increase your portfolio's performance over time while limiting the chances that the underlying investment will be called away. 

The expressions used to define cash values of options are “in-the-money”, “at-the-money” and “out-of-themoney”. For a call option, if the underlying investment is selling at a higher price than its strike price, it is in-the-money. That is because the option could be exercised immediately from the option holder. You can still get a high premium for an out-of-themoney call by writing it with an

“To achieve consistent performance when writing covered calls, it is recommended that you don't get too greedy.” your ETF substantially increases in value, you would not participate in any growth over $50. Also, the fact that you own shares of stock subjects you to market risk and your ETF could decrease by an amount greater than the premium you collected. Because a covered call limits the appreciation you can experience, write covered calls only if you like an investment but do not think it will rise substantially in the short-term. Conversely, if you think the price will drop substantially, sell it outright. The premium will not be much help if the price tanks. Finally, write covered calls only on positions you don't mind selling. If the price rises above the strike price, the

ETF Radar Magazine • 2nd Quarter 2010

expiration that is further off in the future. For instance, that same XYZ call with a strike price of $50 sold for only 50 cents when it carried an expiration date only a month off. If you wrote it with a date of three months off, you would have gotten a premium of $1.90. It is important to understand that the added premium comes at the cost of added risk in this case, that the Exchange Traded Fund could be called away during the time period of the option. That fact is extremely important you must be comfortable with the strike price that you will be receiving if the stock or ETF appreciates. From a tax standpoint,

Marketplace

Global

TOP 25 ETF PROVIDER WORLDWIDE (Total Value of ETF Trading; YTD figures in USD millions)

# ETFS ISHARES 437 STATE STREET GLOBAL ADV. 107 VANGUARD 47 LYXOR ASSET MANAGEMENT 129 DB X-TRACKERS 123 POWERSHARES 126 PROSHARES 88 NOMURA AM 30 VAN ECK ASSOCIATES 24 CREDIT SUISSE AM 40 BANK OF NEW YORK 1 ZURICH KANTONAL BANK 7 WISDOM TREE 52 COMMERZBANK 68 CLAYMORE 58 ETF LAB 32 EASYETF 64 HANG SENG I.M. 3 NIIKO AM 12 DIREXION SHARES 28 AMUNDI I.S. 76 DAIWA AM 23 UBS 16 CHINA AM 2 RYDEX 31

AUM BN. USD 471.95 144.51 95.40 44.93 36.11 33.65 23.66 13.42 12.39 10.22 8.01 6.98 6.31 6.24 6.17 5.81 5.72 5.71 5.45 5.17 4.97 4.60 3.90 3.44 3.12

TOTAL MKT. SHARE # PLANNED 47.1% 29 14.4% 27 9.5% 3 4.5% 0 3.6% 11 3.4% 51 2.4% 104 1.3% 0 1.2% 14 1.0% 0 0.8% 0 0.7% 0 0.6% 67 0.6% 2 0.6% 15 0.6% 0 0.6% 2 0.6% 0 0.5% 0 0.5% 1 0.5% 0 0.5% 1 0.4% 0 0.3% 2 0.3% 82

CHNGE. % AUM –3.5% –10.2% –3.7% –3.1% –3.4% –2.8% –2.0% –0.4% –0.5% –5.9% –6.6% –4.3% –2.5% –0.2% –0.3% –17.8% –2.4% –8.0% –5.1% –2.9% –4.1% –6.8% –10.6% –8.9% –1.9%

Source: Blackrock|Data as of 26 February 2010.

TOP 10 ETFS WORLDWIDE (ADTV)

TOP 10 ETFS WORLDWIDE (TOTAL AUM)

(sorted descending by Average Daily Trading Volumes, in USD mn.)

(sorted descending by Assets-under-Management, in USD mn.)

ETF NAME

TICKER

SSGA SPDR S&P 500 POWERSHARES QQQ TRUST ISHARES RUSSEL 2000 INDEX FUND ISHARES MSCI EMERGING MARKETS INDEX FUND DIREXION DAILY FINANCIAL BULL 3X SHS. PROSHARES ULTRASHORT S&P500 FINANCIAL SELECT SECTOR SPDR FUND ISHARES MSCI BRAZIL INDEX FUND DIREXION DAILY FINANCIAL BEAR 3X SHS. ENERGY SELECT SECTOR SPDR FUND

SPY US QQQQ US IWM US EEM US FAS US SDS US XLF US EWZ US FAZ US XLE US

ADTV 25,480 4,448 3,799 3,315 2,305 1,675 1,594 1,467 1,416 1,278

         

Source: Blackrock|Data as of 26 February 2010.

ETF Radar Magazine • 2nd Quarter 2010

ETF NAME

TICKER

SSGA SPDR S&P 500 ISHARES MSCI EAFE INDEX FUND ISHARES MSCI EMGING MKTS INDEX FUND ISHARES S&P 500 INDEX FUND VANGUARD EMGING MKTS ETF ISHARES BARCLAYS TIPS BOND FUND POWERSHARES QQQ TRUST VANGUARD TOTAL STOCK MARKET ETF ISHARES RUSSEL 2000 INDEX FUND ISHARES IBOXX USD INVSTM. GRD. CORP. BND FD

SPY US EFA US EEM US IVV US VWO US TIP US QQQQ US VTI US IWM US LQD US

AUM 70,135 33,200 32,838 21,832 20,356 20,066 17,800 13,387 13,249 12,151

ADV          

25,480 1,116 3,315 463 471 129 4,448 118 3,799 126

         

Source: Blackrock|Data as of 26 February 2010.

Marketplace

Americas

AMERICAN EXCHANGES AT A GLANCE (sorted descending by total turnover, in EUR mn.) Exchange

# of ETFs January February

Total Turnover (ETFs) January February

# of Trades (in thousands) January February

Americas BM&FBOV ESPA

225.6

246.5

7.1

Lima SE

0.2

0.1

0.0

247

256

5,350.1

6,926.7

20.3

20.7

Mexican Exchange NA SDA Q OMX NYSE Euronext (US) TSX Group

9.8

110,636.9

87,038.5

3,349.0

2,917.0

1067

1079

308,565.0

331,068.6

17,068.7

18,474.7

149

157

9,309.3

7,955.4

935.1

844.7

Source: World Federation of Exchanges| Data as of 26 Februar 2010.

ON THE RADAR +++ SELECTED ETF NEWS

TOP 10 ETFS IN THE U.S. (TOTAL AUM) (sorted descending by Assets-under-Management, in USD mn.) ETF NAME

TICKER

SPY US EFA US EEM US IVV US VWO US TIP US QQQQ US VTI US IWM US LQD US

AUM 70,135 33,200 32,838 21,832 20,356 20,066 17,800 13,387 13,249 12,151

ADV          

25,480 1,116 3,315 463 471 129 4,448 118 3,799 126

         

Source: Blackrock|Data as of Data as of 26 February 2010.

USA: JPMORGAN PLANS TO LAUNCH EXCHANGETRADED FUNDS JPMorgan Chase plans to jump into the burgeoning exchangetraded fund business in North America, according to a recent Reuters newsrelease. JPM sought approval for both index-based and actively managed ETFs. One index-based fund will track an index of investment-grade municipal bonds with maturities between one and 12 years, while the other will track investmentgrade corporate debt with an issuance of at least USD 300 million. USA: PROSHARES FACES LAWSUIT

TOP 10 ETFS IN THE U.S. (ADTV) (sorted descending by Average Daily Trading Volumes, in USD mn.) ETF NAME

TICKER

SPY US QQQQ US IWM US EEM US FAS US SDS US XLF US EWZ US FAZ US XLE US

ADTV 25,480 4,448 3,799 3,315 2,305 1,675 1,594 1,467 1,416 1,278

         

Source: Blackrock|Data as of Data as of 26 February 2010.

ETF Radar Magazine • 2nd Quarter 2010

A lawsuit alleges that ProShares Trust, which offered shares in the Ultra Basic Materials fund (UYM), gave false and misleading information in the Registration Statement, Prospectuses and Statements of Additional Information. The lawsuit, filed March 10, 2010, seeks to recover damages on behalf of class members who obtained shares of ProShares Ultra Basic Materials fund. This includes investors who lost money on the transaction or who still hold the shares. According to the lawsuit, Ultra Exchange Traded Funds are designed to go up along with the markets. The UYM Fund was one of ProShares' Ultra ETFs and should have performed at 200 percent the performance of the Dow Jones US Basic Materials Index (DJBMI). From February 1, 2007, through July 30, 2009, the Dow Jones US Basic Materials Index fell approximately 22.75 percent. The UYM Fund should have fallen approximately 45.50 percent (two times that of the Dow Jones Basic Materials Index) but actually fell more than 54 percent. Currently it’s unclear if this tracking error is really serious enough to cause a conviction.

Marketplace

Europe

EUROPEAN EXCHANGES AT A GLANCE (sorted descending by total turnover, in EUR mn.) Exchange

# of ETFs January February

Total Turnover (ETFs) January February

# of Trades (in thousands) January February

Europe - Africa - Middle East A thens Exchange

8.2

3.6

0.3

0.2

505.2

1,269.8

N/A

414

416

7,642.8

8,061.5

272.0

252.1

0.6

0.1

0.0

555

574

20,284.1

19,940.8

174.5

156.9

Irish SE

1.5

2.4

0.1

Istanbul SE

956.5

910.2

19.1

19.2

Johannesburg SE

244.9

241.1

5.5

0.0

384

386

12,668.7

12,825.4

100.7

89.4

BME Spanish Exchanges Borsa Italiana Budapest SE Deutsche Börse

Ljubljana SE London SE NA SDA Q OMX Nordic Exchange NYSE Euronext (Europe) Oslo Børs SIX Swiss Exchange Wiener Börse

1,150.4

2,665.3

35.6

75.1

514

517

11,292.6

12,910.8

174.0

171.9

1,554.4

1,704.5

45.9

57.9

315

5,169.6

5,204.2

50.6

49.2

8.1

5.9

0.2

0.1

Source: World Federation of Exchanges| Data as of 26 Februar 2010.

TOP 10 ETFS IN EUROPE (TOTAL AUM)

ON THE RADAR +++ SELECTED ETF NEWS

(sorted descending by Assets-under-Management, in USD mn.) ETF NAME

TICKER

AUM

LYXOR DJ EURO STOXX 50 ISHARES S&P 500 ISHARES DJ EURO STOXX 50 (DE) ISHARES DJ EURO STOXX 50 ISHARES FTSE 100 ZKB GOLD ETF ISHARES CORP. BOND FUND LYXOR CAC40 XMTCH ON SMI ISHARES DAX (DE)

MSE FP IUSA LN SX5EEX GY EUN2 GY ISF LN ZGLD SW IBCS GY CAC FP XMSMI SW DAXEX GY

6,991 6,771 5,414 5,347 5,286 5,215 4,412 4,143 3,704 3,544

ADV     =     

119 74 88 75 86 35 21 70 22 122

         

Source: Blackrock| Data as of 26 February, 2010.

TOP 10 ETFS IN EUROPE (ADTV) (sorted descending by Average Daily Trading Volumes, in USD mn.) ETF NAME

TICKER

ADTV

ISHARES DAX (DE) LYXOR DJ EURO STOXX 50 ISHARES DJ EURO STOXX 50 (DE) ISHARES FTSE 100 DB X-TRACKERS SHORT DAX ISHARES DJ EURO STOXX 50 ISHARES S&P 500 LYXOR ETF XBEAR CAC40 LYXOR CAC40 DB X-TRACKERS DAX ETF

DAXEX GY MSE FP SX5EEX GY ISF LN XSDX GY EUN2 GY IUSA LN BX4 FP CAC FP XDAX GY

122 119 88 86 82 75 74 72 70 67

         

Source: Blackrock| Data as of 26 February, 2010.

ETF Radar Magazine • 2nd Quarter 2010

SWITZERLAND: REBRANDING AND RELOCATION OF CREDIT SUISSE’S “XMTCH” Credit Suisse, Switzerland’s leading investment bank, plans to rename its exchange traded fund brand “Xmtch” during the second quarter to ensure that the brand clearly reflects the fund's association with the Swiss bank, the Financial Times reported. Also Credit Suisse wants to centralize its ETF unit in London. Currently, there are no information available which new name will be used instead of “Xmtch”. The move comes as “Xmtch's” brand failed to gain significant market share against other top providers of ETFs, despite launching 19 funds under the brand in 2009. The rebranding follows Credit Suisse's appointment of Dan Draper as managing director and head of ETFs in February 2010. LICHTENSTEIN: HEDGE-FUND BASED ETF LAUNCHED Qbasis Invest, a hedge fund boutique, will unveil an ETF based on its flagship hedge fund in Europe. The Qbasis Futures fund, which will feed into the firm’s offshore fund, requires a minimum investment of €100 million. The Lichtenstein-based manager has secured the approval to market its new fund in Austria and is looking for similar authorization in the U.K. The hedge fund manager is planning to roll out the proposed ETF in the beginning of April 2010.

Marketplace

Middle East & Asia-Pacific

MIDDLE AND FAR EAST EXCHANGES AT A GLANCE (sorted descending by total turnover, in EUR mn.) Exchange

# of ETFs January February

Total Turnover (ETFs) January February

# of Trades (in thousands) January February

Asia - Pacific A ustralian SE

349.2

351.6

N/A

Bombay SE

12.8

13.5

14.7

12.5

Bursa Malaysia

0.9

3.4

390.0

206.0

6,298.1

3,575.5

230.7

126.0

0.1

0.0

0.1

0.0

Korea Exchange

1,547.3

1,526.8

501.2

484.6

National Stock Exchange India

125.5

101.1

110.0

96.8

4.7

4.2

0.4

0.5

1,894.4

1,416.1

N/A

Shanghai SE

8,105.2

3,042.7

914.0

403.0

Shenzhen SE

2,294.9

1,270.8

267.9

151.2

Singapore Exchange

245.7

153.0

N/A

Taiwan SE Corp.

627.0

361.3

83.0

51.2

Hong Kong Exchanges Indonesia SE

New Zealand Exchange Osaka SE

The Stock Exchange of Thailand Tokyo SE

9.5

6.0

7.7

5.8

2,036.2

1,589.2

N/A

Source: World Federation of Exchanges| Data as of 26 Februar 2010.

TOP 10 ETFS IN ASIA-PACIFIC (TOTAL AUM)

ON THE RADAR +++ SELECTED ETF NEWS

(sorted descending by Assets-under-Management, in USD mn.) ETF NAME

TICKER

AUM

TSE TOPIX ETF OSE NIKKEI 225 ETF ISHARES FTSE/XINHUA A50 CHINA TRACKER TRACKER FUND OF HONG KONG HANG SENG INDEX ETF LISTED INDEX FUND 225 CHINA 50 ETF HANG SENG H-SHARE INDEX ETF DAIWA ETF TOPIX LISTED INDEX FUND TOPIX

1306 JP 1321 JP 2823 HK 2800 HK 2833 HK 1330 JP 510050 CH 2828 HK 1305 JP 1308 JP

6,092 5,801 5,588 5,260 3,095 2,993 2,945 2,589 2,110 2,096

ADV          

29  52  150  22  0.9  33  196  27  2= 2

Source: Blackrock| Data as of 26 February, 2010.

SAUDI-ARABIA: LAUNCH OF FIRST SAUDI ETF The Capital Market Authority of Saudi Arabia has approved the Gulf state's first exchange traded fund, which will be accessible to foreigners as part of efforts to open up the biggest Arab bourse. Falcom Financial Services, a Saudi investment bank, will launch the Falcom Saudi Equity ETF in March 2010. The fund will be open for investment to foreign investors. The Saudi regulator had recently permitted indirect foreign ownership through swap agreements.

TOP 10 ETFS IN ASIA-PACIFIC (ADTV) UAE: FIRST “EMIRATES ETF” IS EXPECTED SOON

(sorted descending by Average Daily Trading Volumes, in USD mn.) ETF NAME CHINA 50 ETF ISHARES FTSE/XINHUA A50 CHINA TRACKER E FUND SI100 INDEX FUND OSE NIKKEI 225 ETF SAMSUNG KODEX200 ETF LISTED INDEX FUND 225 TSE TOPIX ETF HANG SENG H-SHARE INDEX ETF POLARIS TAIWAN TOP50 TRACKER TRACKER FUND OF HONG KONG

TICKER 510050 2823 HK 159901 CH 1321 JP 069500 KS 1330 JP 1306 JP 2828 HK 0050 TT 2800 HK

ADTV 196  150  77  52  36  33  29  27  25  22 

Abu Dhabi Securities Exchange will trade its first ETF, Emirates Business24-7 reports. The exchange will roll out the fund in cooperation with a major Abu Dhabi bank. The exchange is planning to list the ETF by March 28, 2010. The bourse had previously, in 2008, proposed to list the funds but postponed it due to difficult financial conditions.

Source: Blackrock| Data as of 26 February, 2010.

ETF Radar Magazine • 2nd Quarter 2010

Portfolio Allocator Sector Update

Participation on Promising new data on the housing market along with positive sentiment data were among the factors giving the somewhat beleaguered consumer-discretionary sector a fresh breeze. The SPDR Consumer Discretionary ETF still holds one of the highest ranks in our tactical model.

BY DAVID COHNE | COHNE INVESTMENT GROUP | BOSTON

s mentioned in my previous article, I have created an ETF sector allocation model that looks for sectors that offer the most potential for capital appreciation each month. I utilize proprietary momentum algorithms that rank sectors based on trends in their performance over different time periods. I will be focusing on one of the top ranked sectors or subindustries in each issue. In the previous issue, Real Estate (IYR) was the number one ranked sector, and once again it has made the top of the list in our most recent rankings. It is followed by the SPDR Consumer Discretionary ETF (XLY) and the SPDR Industrials ETF (XLI). In this issue we are going focus on the SPDR Consumer Discretionary ETF (XLY). The Consumer Discretionary sector consists of companies that offer products and services that are non essential. These companies are more sensitive to the state of the economy. Their products typically include luxury items, leisure, retail, media, hotels, apparel and automobiles. The Exchhange Traded Fund, which was originally the Cyclical/Transportation Select SPDR until June 2002, tracks the performance of the S&P Consumer Discretionary Index. The sector makes up over 10% of the S&P 500 Index. The fund which was launched on th December 16 , 1998 is one of the earlier ETF offerings. It currently holds 83 securities and has a fairly low expense ratio of 0.21%. XLY has an average trading volume of 5.5 million shares with net assets close to $1.9 billion. The top industries in the fund are Retail, Media and Leisure. In fact, Retail and Media currently make up over 50% of the fund. The top holdings which make over 45% of the fund include such well known firms such as McDonalds Corp, Walt Disney Co., Home Depot Inc., Comcast Corp., Amazon.com Inc., Ford Motor Co., ETF Radar Magazine • 2nd Quarter 2010

TACTICAL ETF RANKING RANK 1

SYMBOL

ETF

IYR

iShares DJ U.S. Real Estate

XLY

SPDR Consumer Discretionary ETF

XLI

SPDR Industrials ETF

IN THIS ISSUE

XLF

SPDR Financial ETF

XLB

SPDR Materials ETF

IGE

iShares Goldman Sachs Natural Resources

XLP

SPDR Consumer Staples ETF

XLK

SPDR Technology ETF

GSG

iShares GSCI Commodity Index

XLE

SPDR Energy ETF Source: Cohne Investment Group | March 2010 Ranking.

"The consumer has a pulse. He has been spending throughout the recession, but on staples rather than luxury items." Phil Orlando, Chief Equity-Market Strategist, Federated Investors

Target Corp., Lowe's Cos. Inc., Time Warner Inc. and DIRECTV Group Inc. There are other ETFs that also offer you exposure to the Consumer Discretionary sector such as the Vanguard Consumer Discretionary ETF ( VCR ) and the PowerShares Dynamic Consumer Discretionary ETF (PEZ). In addition, you could also gain access to the top sub-industries through the SPDR S&P Retail ETF (XRT), PowerShares Dynamic Media ETF (PBS) and the PowerShares Dynamic Leisure & Entertainment ETF (PEJ). 

CONSUMER CONFIDENCE

Portfolio Allocator Sector Update

CONSUMER DISCRETIONARY SELECT SECTOR SPDR FUND EXCHANGE TRADED FUND | TICKER: XLY | SECTOR: CONSUMER DISCRETIONARY

ETF Radar Magazine • 2nd Quarter 2010

CUSIP Marginable Short Selling Allowed Options Available Gross Expense Ratio Inception Date Investment Manager Management Team Distributor Distribution Frequency Exchange

High

XLY

Low

Moderate

High

RISK

QTD YTD 1 Year 3 Year 5 Year 10 Year Inception 12/16/1998 Annualized Volatility:

2.40% 2.40% 76.43% -5.80% -0.67% 2.80% 2.96%

9.01% 41.16% 41.16% -6.63% -2.06% 0.66% 2.78%

2010

Month End Quarter End 02/28/2010 12/31/2009

2009

PERFORMANCE 2008

Weight (%) 6.80 6.14 5.21 4.77 4.29 4.18 3.77 3.46 3.44 3.13 2.98 2.75 2.03 1.79 1.76 1.71 1.69 1.63 1.62 1.58 1.55 1.31 1.16 1.15 1.09 1.07 1.05 1.01 0.92 0.87 0.87 0.85 0.79 0.78 0.75 0.71 0.69 0.69 0.67 0.63 0.63 0.63 0.62 0.62 0.62 0.59 0.57 0.56 0.54 0.54 0.49 0.48 0.47 0.47 0.47 0.45 0.45 0.45 0.44 0.41 0.41 0.4 0.39 0.37 0.37 0.35 0.34 0.33 0.33 0.31 0.31 0.29 0.29 0.26 0.26 0.25 0.21 0.17 0.16 0.15 0.12 0.12 -0.04

2007

Company Mcdonalds Corp Disney Walt Co Home Depot Inc Comcast Corp New Ford Mtr Co Del Amazon Com Inc Target Corp Lowes Cos Inc Time Warner Inc Directv News Corp Nike Inc Johnson Ctls Inc Viacom Inc New Starbucks Corp Tjx Cos Inc New Yum Brands Inc Time Warner Cable Inc Staples Inc Kohls Corp Carnival Corp Best Buy Inc Omnicom Group Inc Coach Inc Bed Bath & Beyond Inc Mcgraw Hill Cos Inc Gap Inc Del Priceline Com Inc Cbs Corp New Discovery Communicatns New Stanley Black & Decker Inc Macys Inc Mattel Inc Apollo Group Inc Starwood Hotels&Resorts Wrl Fortune Brands Inc Penney J C Inc Marriott Intl Inc New V F Corp Nordstrom Inc Limited Brands Inc Harley Davidson Inc Genuine Parts Co Whirlpool Corp Ross Stores Inc Sherwin Williams Co Darden Restaurants Inc Tiffany & Co New O Reilly Automotive Inc Block H & R Inc Autozone Inc Sears Hldgs Corp International Game Technolo Family Dlr Stores Inc Wynn Resorts Ltd Polo Ralph Lauren Corp Expedia Inc Del Hasbro Inc Urban Outfitters Inc Newell Rubbermaid Inc Wyndham Worldwide Corp Interpublic Group Cos Inc Devry Inc Del Abercrombie & Fitch Co Gannett Inc Scripps Networks Interact I Pulte Homes Inc D R Horton Inc Gamestop Corp New Leggett & Platt Inc Goodyear Tire & Rubr Co Harman Intl Inds Inc Big Lots Inc Radioshack Corp Washington Post Co Lennar Corp Office Depot Inc State Str Instl Liquid Resvs Autonation Inc Eastman Kodak Co New York Times Co Meredith Corp U.S. Dollar

(based on an investment horizon of 12 months)

RETURN

Ticker MCD DIS HD CMCSA F AMZN TGT LOW TWX DTV NWSA NKE JCI VIA.B SBUX TJX YUM TWC SPLS KSS CCL BBY OMC COH BBBY MHP GPS PCLN CBS DISCA SWK M MAT APOL HOT FO JCP MAR VFC JWN LTD HOG GPC WHR ROST SHW DRI TIF ORLY HRB AZO SHLD IGT FDO WYNN RL EXPE HAS URBN NWL WYN IPG DV ANF GCI SNI PHM DHI GME LEG GT HAR BIG RSH WPO LEN ODP 85749P9A AN EK NYT MDP CASH

RISK-REWARD-ANALYSIS XLY S&P Consumer Discretionary Select Sector Index 81369Y407 Yes Yes Yes 0.21% 12/16/1998 SSgA ETF Management Team ALPS Distributors, Inc. Quarterly NYSE

Moderate

FUND PROFILE Ticker Symbol Primary Benchmark

Low

HOLDINGS

6.31 25

Please note that the ETFs presented in the Portfolio Allocator Sector Update have been selected independently. This section is not sponsored by an ETF issuer or associated with an ETF issuer and its products or an ETF distributor. Investors act on their own risk. The value of the products presented within this section could increase and decrease. For further information please see the magazine’s disclaimer page.

Research

The market for ETF is maturing: steadily growing assets, an increasing number of funds and fund providers. It is now time to cater the need for independent and reliable information. Etfinfo.com has been launched to easily deliver, transparent and free information to ETF investors in Europe.

BY SIMON ULLRICH | FUNDINFO | ZURICH

tfinfo.com is a new, independent source for comprehensive information on Exchange Traded Funds (ETFs) in Europe. It is geared towards professional investors e.g. asset and portfolio managers, managers of funds of funds and pension schemes research departments as well as interested private investors and journalists. Designed as a tool, a lean and powerful search functionality ensures fast access to information on all ETFs currently registered for sale in Germany, Switzerland and Austria. However, the next countries are already on the map in order to deliver a highly broad overview of the European market.

Even the original fund documents can be accessed directly thanks to fundinfo.com. All information needed for a well grounded investment decision can be gathered at a single place. Data quality being of highest priority, is hardly useful without proper usability of the information, the second strength etfinfo.com focuses on. A powerful search functionality is implemented on top of the website. For a broad overview, the screening view shows all available fund providers, strategies and underlying indices. With the comparison tool, etfinfo.com offers a transparent and independent comparison of funds where the performance is based on the total return of the NAV. All information will be available for download as a spreadsheet or PDF-file.

Critical success factor is the data quality. All information displayed on the website is coming directly from the source: the fund providers and the exchange places no secondary sources are accepted. Backed by and in close collaboration with Exchange Traded Fund providers, the concept is to cater the Exchange Traded Fund market as a whole by bringing together fund providers and investors. Another benefit is that this collaboration enables the delivery of information to investors via the open platform and free of charge to users of etfinfo.com.

Yet, data is not valuable if the meaning is not completely clear. Encouraged by the fund providers, etfinfo.com has started an education program aimed at the same target audience as the platform. Successfully carried out in Switzerland last December and January, a two-dayseminar has been established.

The amount of information is manifold, ranging from fees, replication method and underlying to NAV, Assets Under Management and market prices from most exchange places up to performance figures based on NAV. In total, more than 100 data items are covered.

Starting with basic education about how exchange traded funds work and all relevant players, also advanced topics such as evaluation of risk and portfolio considerations are covered. In the months to come, this concept will be brought to a larger audience, starting also in Germany.

“Designed as a tool, a lean and powerful search functionality ensures fast access to information on all ETFs currently registered for sale in Germany, Switzerland and Austria.“ ETF Radar Magazine • 2nd Quarter 2010

Delivering the transparency that ETFs deserve

Interview

Standard&Poor’s Reid Steadman about the latest index innovations, the reasons why to invest in S&P indices and the process setting up a customized ETF index.

BY MARTIN RAAB | ETF RADAR MAGAZINE | NAPLES (FL)/MUNICH

Passive investment products - especially ETFs have gained a significant market share. How did S&P's Indices business perform within this environment in the last 24 months?

headline indices can be divided in many ways, including by size class (large, mid, small), geography, and sector. Adding all these up, we calculate more than 400,000 indices daily.

The past two years have been transformative for S&P Indices. The volatility of global markets has highlighted the value of transparency. Investors want to understand how their investments are performing relative to the market. Our benchmarks provide this important information. Investors also want to know the risks and opportunities associated with their holdings. Index based products provide the clarity investors require. These trends have increased demand for our services.

In the ETF space, our most popular indices continue to be those in our core U.S. index family. At the end of 2009, approximately $190 billion in ETF assets tracked the S&P 500, S&P MidCap 400, and S&P SmallCap 600, as well as sector and growth and value versions of these. What are your latest product/index innovations? Innovation is an important focus point for our business and several of our new indices are attracting attention. For example, we have been expanding our series of S&P Risk Control indices. These indices target a level of volatility and manage risk relative to that target by varying exposure to an index, like the S&P 500. We hope to see ETFs tracking these indices in the future.

More specifically, market turbulence has increased demand for ETFs, which offer the diversification of mutual funds coupled with the tradability of stocks. For many individual and institutional investors, ETFs have become the products of choice. Approximately VITA a quarter of all ETF assets track an Reid Steadman, Global Head of ETF Licensing, S&P index, so the growing popular- who is based in London, is responsible for ity of these products has obviously licensing Standard & Poor's indices to key partners in Europe, Asia, and the U.S. for the been a positive for S&P Indices. How many indices does S&P currently offer and on which index are the most Products (ETFs) linked? S&P publishes several hundred benchmarks that we consider “headline” indices. These are wellknown by investors and used regularly as underlying indices for financial products. All of these ETF Radar Magazine • 2nd Quarter 2010

creation of exchange traded funds (ETFs). Prior to his current position, Reid was a member of S&P Index Services' marketing team and was responsible for cultivating relationships with pension fund administrators, pension consultants, and asset managers. Before joining Standard & Poor's in 2003, Reid worked as an economist for the United States Bureau of Labor Statistics. Reid holds a Bachelors of Arts in economics from Brigham Young University. He also holds an MBA from Carnegie Mellon University, with emphases in finance and marketing.

Innovations in the ETF space take time to make an impact. This said, new indices and ETFs tracking them can make a meaningful difference to investors. In 2007 S&P licensed the S&P China BMI Index to State Street who launched the SPDR S&P China ETF (symbol: GXC). Over time, investors realized that the S&P index gave them a very different view on China than indices focused on the large-cap companies only. An investment in a product tracking »

Coverstory

S&P's all-cap index would have seen a price return in 2009 of over 60%. By comparison, an index tracking the large cap market would have returned about 47% during the same time. Investors who took advantage of this subtle innovation all-cap exposure were better off.

“Investors who took advantage of this subtle innovation all-cap exposure were better off.” By which unique characteristics the S&P indices distinguish itself versus competitors like Dow Jones/Stoxx Indexes? Our aim is to distinguish ourselves in many ways by brand awareness, by research, and by service, to name a few. The oldest and largest ETF in the world, the SPDR S&P 500 ETF, tracks an S&P index. For this reason alone, S&P's brand is strongly associated with ETFs and index-based products generally. By experience, investors simply know that an S&P index is reliable. We support this view by producing quality research and services for investors and our ETF partners. Users of S&P indices know that there is a wealth of information regarding our indices offered on our website and through third party information vendors. This background information and services allow investors to analyze a market and get the most out of a benchmark.

How is the process structured, if an institutional investor or bank wants to get a customized S&P index for its own ETFs? If a new index is required, S&P makes sure the client gets the right index through a consultative process. If S&P feels the index that the asset manager wants to create might be useful to the general investment community, S&P may adds its brand to the index with the asset manager's agreement and market the index broadly. This of course benefits all investors and the asset manager offering the ETF. However, if the new index is for a very specific purpose and the asset manager wants to keep ownership of the intellectual property, S&P might calculate the index for a fee on a white label basis and allow the asset manager to apply their own branding. We have a group called S&P Custom Indices that is solely dedicated to this activity. They have a great variety of capabilities and can create indices tracking many asset classes, including equity, commodity, and fixed income. Thank you for the interview!

ETF Radar Magazine • 2nd Quarter 2010 SPECIAL ADVERTISING

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330 South Tryon Street P.O. Box 32785 Charlotte, North Carolina 28232 U.S.A. 704.378.1300 phone 704.374.1903 fax www.charlottechamber.com

No One Knows Charlotte the Way We Do!

Career&Events

CAREER

Outlook CURRENT JOB OFFERS

ACTIVE EMPLOYERS

Total amount and global allocation of job offers within the ETF Industry

Top 10 Hiring Companies – incl. Recruiting Agencies – Worldwide

R E G ION

OF F E R S T R E N D

N ort h A merica United States Canada L at in-/S out h A merica B raz il E urope United K ingdom G erm any Sw itz erland France M iddle E ast UAE (D ub ai) A sia-P acif ic Singap ore Hong K ong Aus tralia T ot al

401 1

 



92 7 4 2

   



2 2 3 51 9

   

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Blackrock (US) Mitchell Martin (US) Charles Schwab (US) J.P. Morgan (US) Morgan Stanley (US) Russel Investment (US) Vanguard (US) ProFunds Advisors (UK) Citifocus (UK) ETF Securities (US)

Source: ETF Radar Global Research| Data as of March, 22 2010.

Job Offers sorted by State: New York California Massachusetts New Jersey North Carolina Maryland Illinois Connecticut Florida Others Nationwide

117 142 17 28 4 14 24 21 4 30 401

ETF Radar Magazine • 2nd Quarter 2010

29% 35% 4% 17% 1% 3% 6% 5% 1% 7% 100%

Source: ETF Radar Global Research| Data as of March 22, 2010.

Career&Events

EVENT

Calendar PREVIEW ON SELECTED EVENTS

MAY

APRIL

MARCH The Art of Indexing Summit Europe

Inside ETFs Europe

Structured Products Americas

25 March 2010

12 – 13 April 2010

6 – 7 May 2010

Location

Frankfurt/Main (Germany), TBA

Amsterdam (The Netherlands), Mövenpick Hotel

Miami (USA), The Biltmore Hotel, Coral Gables

Organizer information

www.artofindexing.com

www.insideetfseurope.com

www.structuredproductsamericas.com

Registration Fee

Starting at 1,999 EUR,

Complimentary for qualified investors

TBA

ENDED

EVEN

OM EC M

discounts for ETF Radar Magazine readers available upon request!

ETF & Indexing Investments USA 19 April 2010

JUNE

The Investment Case for Gold Conferences 2010

New York City (USA), Millennium UN Plaza Hotel

The Art of Indexing Summit Asia

starting 25 March 2010

Organizer information

8 June 2010

Location

Zurich – Friday 26th March

TBA

Location OM EC M

Registration Fee

ENDED

Vienna – Tuesday 20th April

www.terrapinn.org

Geneva – Thursday 25th March

EVEN

Locations

Singapore, The Fullerton Hotel Organizer information www.artofindexing.com/asia

Munich – Wednesday 21st April

European Investment Series 2010

Registration Fee

Madrid - Thursday 22nd April

20 April 2010

TBA

Hamburg – Wednesday 28th April

Location

Edinburgh – Thursday 29th April

Zurich (Switzerland), Baur Au Lac Hotel

Organizer information

JULY

www.etfsecurities.com

www.ftbusinessevents.com

ETF Investments 2010

Registration Fee

12 – 15 July 2010

Complimentary for qualified investors

Location Singapore, Grand Copthorne Waterfront Hotel Organizer information www.kavaq.com

Location

Registration Fee

Shanghai (China), Sheraton HongQiao Hotel

Starting at 2,995 USD, discounts for ETF Radar Magazine readers

www.indexingetf.com

available upon request!

ENDED

EVEN

Registration Fee

OM EC M

Organizer information

ETF & Indexing Investments China 20 – 21 April 2010

TBA

Is your upcoming event not listed? Just let us know. magazine@etf-radar.com

ETF Radar Magazine • 2nd Quarter 2010

Global Players (Selection) E T F P rov ider

C ont act det ails (website/Headoffice)

(trading as)

R at ing s

M arket

L ist ed E T F s

F lag ship

(S&P /MDY S

R eg ulat ors

(global)

product s

M anag ement

/FTCH)

(Selection)

(Ticker)

(Trend)

-/A1/-

SEC, FSA (UK ),

Blackrock/BG I

www.ishares.com

iShares

London EC3N 4HH (UK )

S S g A Inc.

www.ssgafunds.com

StreetTracks

B oston, MA, 02111 (USA)

V ang uard

www.vanguard.com

Vanguard ETFs

Wayne, P A 19087 (USA)

S ociét é G énérale S A

www.lyx oretf.com

Lyx or ETFs

92987 P aris-La Défense (FR)

D eut sche Bank A G

www.dbx trackers.com

db x-trackers

60311 Frankfurt (GER)

Inv esco

www.invescopowershares.com

P owerShares ETFs

Wheaton, IL 60187 (USA)

BB+

P roS hares

www.proshares.com

P roShares

B ethesda, MD 20814 (USA)

N omura A M

www.nomura-am.co.jp

Nomura ETFs

Tokyo 103-8260 (Japan)

V an E ck S ec. C orp.

www.vaneck.com

marketvector

New York, NY 10017 (USA)

N ikko A M

www.nikkoam.com

nikko ETFs

Tokyo, 107-6242, (Japan)

C redit S uisse A M

www.xmtch-etf.com

x mtch ETFs

8070 Zürich (CH)

BN P P aribas

www.easyetf.com

EasyETFs

75009 P aris (FR)

E T F L ab Inv mt .

www.etflab.de

etflab

80807 München (GER)

W isdomT ree Inv mt .

www.wisdomtree.com

WisdomTree ETFs

New York, NY 10017 (USA)

C ommerz bank A G

www.comstage.de

comstage ETFs

60311 Frankfurt (GER)

411

E x chang e L ist ing s

A sset s-under-

US, UK , GER, IT, CH, FR,

US$472 Bn

AT, HK , SG, AU



SP DR

US, FR, NL, SG, HK , AU

US$142 Bn US$88 Bn US$45 Bn

IWM, DAXEX,

AMF SEC

106

-/-/-

SEC

AA-/Aa2/-

AMF, FSA (UK )

125

LVC, CAC, MSE

GER, UK , IT, ES, CH, FR, AT, SG



121

XDAX, XEO D

GER, UK , IT, CH, FR, AT,

US$37 Bn



SEC

125

QQQQ

US$32 Bn

-/-/-

SEC

P SQ , Q LM,

US$23.7 Bn

-/B aa2/B B B

FSA (JP )

US$13.7 Bn

-/-/-

SEC

GDX, RSX

US$11.9 Bn

-/A1/-

 

A+/Aa1/AA- B aFIN, AMF, FSA (UK ) B B B +/A3/B

 

DDM

  -/-/-

SEC

US$5.5 Bn

A+/Aa1/AA-

FINMA

XMSMI

US$7.9 Bn

AA/Aa1/AA

AMF

CP ETDX5

GER, FR, IT, CH

US$5.8 Bn

A/-/Aa2

B AFIN

ETFL01,

GER

US$6.2 Bn

   

ETFL02 -/-/-

SEC

B AFIN

WTIND, WTDFA

US$6.1 Bn

CB DAX

GER

US$5.56 Bn

 A/Aa3/A+



Table sorted by Assets-under-Management. Please notice: SSgA rating equals STT Corp. rating. iShares ratings equals Blackrock's rating. Nomura AM equals Nomura Hlds' rating. ETFLab Invmt. equals Dekabank's rating. Source: ETF Radar Research, Dec 31, 2009.

ETF Radar Magazine • 2nd Quarter 2010

Disclaimer

Important notice to our readers: The views and expectations presented in the analyses, data and product presentations in this publication should not be viewed as investment recommendations of and by the ETF Radar Magazine or any of its affiliates or associates. Investors should seek independent professional advice. Contributors of this publication and/or its affiliates may invest in or act as a market maker for the securities or indices or other products referred to in this publication for its own account or the account of a third party. Editorial contributors may also have a business relationship with issuers of such securities or providers of such indices or products and may represent members of such issuers' or providers' decisionmaking bodies. While the information in this publication has been obtained from sources believed to be reliable, neither the ETF Radar Magazine nor any contributor makes any representation as to its accuracy or completeness. The ETF Radar Magazine does not act as an registered investment advisor or fiduciary for anyone unless otherwise agreed. Any evaluations in this publication reflect only the author's opinion at the time of the analysis. The opinions, forecasts, assumptions, estimates, derived valuations and target price(s) contained in this material are as of the date indicated and are subject to change at any time without prior notice. This publication is general and for information only and does not constitute any form of recommendation, an offer to sell or a solicitation to buy any security or other financial instrument. Prospective investors should understand the risks associated with the products mentioned in this publication and should reach an investment decision on the basis of the information in the relevant offering circulars. Neither the staff of the ETF Radar Magazine nor any other person shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary loss or damages, including without limitation lost profits arising in any way from the information contained in the material. All designated trademarks and brands are the property of their respective owners. Additional Information and Disclaimers All figures are subject to market fluctuation and change. Investments that are concentrated in a specific sector or industry may be subject to a higher degree of market risk than investments that are more diversified. An index is not managed and is unavailable for direct investment. Total returns assume reinvestment of all distributions, including dividends and capital gains. Reinvestment does not assure a profit or protect against a loss in declining markets. Total returns do not include commissions, fees, other transaction variables or the effects of taxation. Past performance does not guarantee or predict future results. The investment discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. This communication is not an offer to sell or solicitation of offers to buy any securities mentioned herein. This report is not a complete analysis of every material fact in respect to any fund or fund type. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable but its accuracy is not guaranteed. The ETF Radar Magazine does not render legal, accounting or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences. The performance provided is past performance, which does not guarantee future results and current performance may be lower or higher than the performance data quoted. The investment return and principal value will fluctuate when sold and may be worth more or less than the original cost. EXCHANGE TRADED FUNDS ARE SOLD BY PROSPECTUS. PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISK, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CAN BE OBTAINED FROM THE ETF SPONSOR OR YOUR FINANCIAL ADVISOR. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.

ETF Radar Magazine â&#x20AC;˘ 2nd Quarter 2010